Friday, October 17, 2008
Andrew Hill in the FT on the matter of the bonuses of bankers etc - 'The US and the UK have two objectives: to curb future recklessness and - a less worthy aim - to punish past excess.'
So I get hold of a written-off car. I patch it together to look like new, even though its chassis is held together by duct tape. I create a fake registration and sell it. I would, if caught, be charged and imprisoned. My pleas that everybody else was at it and, anyway, the car registration documents were too easy to fake are rightly ignored.
Or I am a banker. I buy in a load of very dodgy mortgages. I turn them into shiny new securities. They are held together by duct tape, but they carry the credit rating of my bank. I then sell them. If caught, my pleas that everybody else was at it - the Nuremberg defence - and, anyway, government regulations were too lax are wholly accepted and, even though my actions have helped impoverish the world by $50 trillion and have thrown millions out of work, punishing me is not regarded as 'worthy'. In fact, you'll give me billions to keep me afloat because, having effectively turned all banks into one bank that cannot be allowed to fail, I have you over a barrel.
There is only a slight moral difference between 'chopping' a car and securitising bad debt. The buyer of my junk bond is likely to be smarter and better informed than the buyer of my car. But, against that, there is the fact that I don't really care any more than he does because it's all about bonuses and the chances of either of us getting caught before the year end are slim. Our shareholders are the real suckers - and the pensioners, and the dispossessed and the unemployed.
There is a pragmatic argument against pursuing mortgage 'choppers'. This is that we need these clever guys to get the system up and running again. This is like saying we'll keep the car crook out of prison because only he can help us fix the insurance/car registration system. The truth is that the City boys made such a gigantic mess of things that their judgment and experience are effectively worthless.
There's also a political argument. Pursuing the bad guys is likely to intensify the social tensions from which we will suffer over the next few years. An amnesty is the safest solution. There is some merit in this.
My point is that, irrespective of who, exactly, was guilty of what at the regulatory and political level, nobody can seriously doubt that the banks and assorted other companies were guilty of this. In strict juridical terms, pursuing them is entirely worthy and, in fact, obligatory. Even in political terms, it will have the beneficial effect of making banks much more cautious in the future - precisely the outcome we are now pursuing by other means. But I can see that, except in a few cases, it won't happen and I know why. This crime is just too big to prosecute.
Posted by Bryan Appleyard at 3:47 am